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                                                                   EXHIBIT 10.17

                              PANHANDLE STATE BANK
                          SALARY CONTINUATION AGREEMENT

         THIS SALARY CONTINUATION AGREEMENT is entered into as of this____ day
of ____, 2003, by and between Panhandle State Bank, an Idaho-chartered,
FDIC-insured bank with its main office in Sandpoint, Idaho (the "Bank"), and
Jerrold B. Smith, President of the Bank (the "Executive").

         WHEREAS, the Executive has contributed substantially to the success of
the Bank and its parent corporation, Intermountain Community Bancorp
("Bancorp"), and the Bank desires that the Executive continue in its employ,

         WHEREAS, to encourage the Executive to remain an employee of the Bank,
the Bank is willing to provide salary continuation benefits to the Executive,
payable out of the Bank's general assets,

         WHEREAS, none of the conditions or events included in the definition of
the term "golden parachute payment" contained in section 18(k)(4)(A)(ii) of the
Federal Deposit Insurance Act [12 U.S.C. 1828(k)(4)(A)(ii)] and in Federal
Deposit Insurance Corporation Rule 359.1(f)(1)(ii) [12 CFR 359.1(f)(1)(ii)]
exists or, to the best knowledge of the Bank, is contemplated insofar as the
Bank is concerned.

         NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                                    ARTICLE 1
                                   DEFINITIONS

         Whenever used in this Agreement, the following terms shall have the
meanings specified:

         1.1      "Accrual Balance" means the liability that should be accrued
by the Bank under generally accepted accounting principles ("GAAP") for the
Bank's obligation to the Executive under this Agreement, by applying Accounting
Principles Board 12, as amended by Financial Accounting Standard 106, and the
calculation method and discount rate specified hereinafter. The Accrual Balance
shall be calculated assuming a level principal amount and interest as the
discount rate is accrued each period. The principal accrual is determined such
that when it is credited with interest each month, the Accrual Balance at Normal
Retirement Age equals the present value of the normal retirement benefits. The
discount rate means the rate used by the Plan Administrator for determining the
Accrual Balance. The rate is based on the yield on a 20_year corporate bond
rated Aa by Moody's, rounded to the nearest 1/4%. The initial discount rate is
7.00%. However, the Plan Administrator, in its sole discretion, may adjust the
discount rate to maintain the rate within reasonable standards according to
GAAP.

         1.2      "Change in Control" means any one of the following events
occurs:

         (a) Merger. Bancorp merges into or consolidates with another
corporation, or merges another corporation into Bancorp, and as a result less
than 50% of the combined voting power of the resulting corporation immediately
after the merger or consolidation is held by persons who were the holders of
Bancorp's voting securities immediately before the merger or consolidation,

         (b) Acquisition of Significant Share Ownership. (1) a report on
Schedule 13D or another form or schedule (other than Schedule 13G) is filed or
is required to be filed under sections 13(d) or 14(d) of the Securities Exchange
Act of 1934, if the schedule discloses that the filing person or persons acting
in concert has or have become the beneficial owner of 25% or more of a class of
Bancorp's voting securities, or if Bancorp does not then have equity securities
registered under section 12 of the Securities Exchange Act of 1934 a person or
group acting in concert has or have become the beneficial owner of 25% or more
of a class of Bancorp's voting securities, but this paragraph (b) shall not
apply to beneficial ownership of voting shares of Bancorp held in a fiduciary
capacity by an entity in which Bancorp directly or indirectly beneficially owns
50% or more of the outstanding voting securities,

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         (c) Change in Board Composition. during any period of two consecutive
years, individuals who constitute Bancorp's board of directors at the beginning
of the two-year period cease for any reason to constitute at least a majority
thereof; provided, however, that -- for purposes of this paragraph (c) -- each
director who is first elected by the board (or first nominated by the board for
election by stockholders) by a vote of at least two-thirds (2/3) of the
directors who were directors at the beginning of the period shall be deemed to
have been a director at the beginning of the two-year period,

         (d) Sale of Assets. Bancorp sells to a third party all or substantially
all of Bancorp's assets. For this purpose, sale of all or substantially all of
Bancorp's assets includes sale of the shares or assets of the Bank alone, or

         (e) Change in Control Under Severance Agreement. a change in control is
deemed to have occurred according to the terms of the September 15, 1999
Executive Severance Agreement by and between the Executive and Bancorp, as the
same may be amended after the date of this Agreement.

         1.3      "Disability" means the Executive suffers a sickness, accident,
or injury that is determined by the carrier of any individual or group
disability insurance policy covering the Executive, or by the Social Security
Administration, to be a disability rendering the Executive totally and
permanently disabled. The Executive must submit proof to the Bank of the
carrier's or Social Security Administration's determination upon the request of
the Bank.

         1.4      "Early Termination" means the Executive's Termination of
Employment with the Bank before Normal Retirement Age for reasons other than
death, Disability, termination under Article 5 of this Agreement, or within 12
months after a Change in Control.

         1.5      "Early Termination Date" means the month, day and year in
which Early Termination occurs.

         1.6      "Effective Date" means January 1, 2002.

         1.7      "Good Reason" for purposes of this Agreement means "Good
Reason" as that term is defined in any employment or severance agreement to
which the Executive is or may hereafter be a party. If the term "Good Reason" is
not defined in an employment agreement or severance agreement, it means --

         (a) a material reduction in Executive's title or responsibilities,

         (b) a reduction in base salary as in effect on the date of a Change in
Control,

         (c) relocation of the Bank's principal executive offices, or requiring
the Executive to change his or her principal work location, to any location that
is more than 15 miles from the location of the Bank's principal executive
offices on the date of this Agreement,

         (d) the adverse and substantial alteration in the nature and quality of
the office space within which the Executive performs his or her duties,
including the size and location thereof, as well as the secretarial and
administrative support provided to the Executive,

         (e) the failure by the Bank to continue to provide the Executive with
compensation and benefits substantially similar to those provided to the
Executive under any of the employee benefit plans in which the Executive becomes
a participant, or the taking of any action by the Bank which would directly or
indirectly materially reduce any of such benefits or deprive the Executive of
any material fringe benefit to which the Executive was entitled at the time of
the Change in Control, or

         (f) the failure of the Bank to obtain a satisfactory agreement from any
successor or assign of the Bank to assume and agree to perform this Agreement,
as contemplated in Section 8.5 hereof.

         1.8      "Normal Retirement Age" means the Executive's 60th birthday.

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         1.9      "Normal Retirement Date" means the later of the Normal
Retirement Age or the Executive's Termination of Employment with the Bank.

         1.10     "Person" means an individual, corporation, partnership, trust,
association, joint venture, pool, syndicate, sole proprietorship, unincorporated
organization or other entity.

         1.11     "Plan Administrator" means the plan administrator described in
Article 7.

         1.12     "Plan Year" means a twelve-month period commencing on January
1 and ending on the last day of December of each year. The initial Plan Year
shall commence on the Effective Date of this Agreement.

         1.13     "Termination for Cause" means the definition of termination
for cause specified in any severance or employment agreement existing on the
date hereof or hereafter entered into between the Executive and the Bank or
Bancorp. If the Executive is not a party to an effective severance or employment
agreement defining termination for cause, Termination for Cause means the Bank
has terminated the Executive's employment for any of the following reasons --

         (a) gross negligence or gross neglect of duties,

         (b) commission of a felony or commission of a misdemeanor involving
moral turpitude, or

         (c) fraud, disloyalty or willful violation of any law or significant
Bank policy committed in connection with the Executive's employment and
resulting in an adverse effect on the Bank. No act or failure to act on the
Executive's part shall be considered "willful" unless the Executive has acted
without good faith, or without good faith has failed to act, and the Executive's
action or inaction is without a reasonable belief that his action or inaction is
in the Bank's best interests.

         1.14     "Termination of Employment" means that the Executive shall
have ceased to be employed by the Bank for any reason whatsoever, excepting a
leave of absence approved by the Bank. For purposes of this Agreement, if there
is a dispute over the employment status of the Executive or the date of
termination of the Executive's employment, the Bank shall have the sole and
absolute right to decide the dispute, unless a Change in Control shall have
occurred.

                                    ARTICLE 2
                                LIFETIME BENEFITS

         2.1      Normal Retirement Benefit. Upon the Executive's Termination of
Employment on or after the Normal Retirement Age for reasons other than death,
the Bank shall pay to the Executive the benefit described in this Section 2.1
instead of any other benefit under this Agreement, provided the Executive has
remained employed by the Bank for 10 years after the Effective Date.

         2.1.1    Amount of Benefit. The annual benefit under this Section 2.1
                  is $110,963.

         2.1.2    Payment of Benefit. Beginning with the month after the
                  Executive's Normal Retirement Date, the Bank shall pay the
                  annual benefit to the Executive in 12 equal monthly
                  installments on the first day of each month. The annual
                  benefit shall be paid to the Executive for 10 years.

         2.2      Early Termination Benefit. For Early Termination, the Bank
shall pay to the Executive the benefit described in this Section 2.2 instead of
any other benefit under this Agreement, provided the Executive has remained
employed by the Bank for 10 years after the Effective Date.

         2.2.1    Amount of Benefit. The benefit under this Section 2.2 is the
                  Early Termination annual benefit amount set forth on Schedule
                  A for the Plan Year ending immediately before the Early
                  Termination Date.

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         2.2.2    Payment of Benefit. Beginning with the month after the Normal
                  Retirement Age, the Bank shall pay the annual benefit to the
                  Executive in 12 equal monthly installments on the first day of
                  each month. The annual benefit shall be paid to the Executive
                  for 10 years.

         2.3      Disability Benefit. If the Executive terminates employment
because of Disability before the Normal Retirement Age, the Bank shall pay to
the Executive the benefit described in this Section 2.3 instead of any other
benefit under this Agreement.

         2.3.1    Amount of Benefit. The benefit under this Section 2.3 is the
                  Disability annual benefit amount set forth on Schedule A for
                  the Plan Year ended immediately before the date on which
                  Termination of Employment because of Disability occurs (except
                  during the first Plan Year, the benefit is the amount set
                  forth for Plan Year 1).

         2.3.2    Payment of Benefit. Beginning with the month after Normal
                  Retirement Age, the Bank shall pay the Disability annual
                  benefit amount to the Executive in 12 equal monthly
                  installments on the first day of each month. The annual
                  benefit shall be paid to the Executive for 10 years.

         2.4      Change-in-Control Benefit. If the Executive's employment with
the Bank terminates involuntarily within 12 months after a Change in Control, or
if the Executive terminates employment voluntarily for Good Reason within 12
months after a Change in Control, the Bank shall pay to the Executive the
benefit described in this Section 2.4 instead of any other benefit under this
Agreement. However, no benefits shall be payable under this Agreement if the
Executive's employment is terminated under circumstances described in Article 5
of this Agreement. Additionally, the Executive shall not be entitled to a
benefit under this Section 2.4 if the Change in Control is the result of a
written supervisory determination by the FDIC that the Bank should be sold.

         2.4.1    Amount of Benefit. The benefit under this Section 2.4 is the
                  Normal Retirement Age Accrual Balance required by Section 2.1,
                  discounting the Normal Retirement Age Accrual Balance to
                  present value using a discount rate of 7.00%, or a discount
                  rate selected by the Plan Administrator if the Plan
                  Administrator determines that a different discount rate is
                  appropriate; provided, however, that the discount rate
                  selected shall not exceed the discount rate employed at the
                  time of the Change in Control for purposes of calculating the
                  Accrual Balance.

         2.4.2    Payment of Benefit: The Bank shall pay the Change-in-Control
                  benefit under Section 2.4 of this Agreement to the Executive
                  in one lump sum within three days after the Executive's
                  Termination of Employment.

         2.5      Petition for Payment of Vested Normal Retirement Benefit,
Vested Early Termination Benefit or Vested Disability Benefit. If the Executive
is entitled to the normal retirement benefit provided by Section 2.1, the Early
Termination benefit provided by Section 2.2, or the Disability benefit provided
by Section 2.3, the Executive may petition the board of directors to have the
Accrual Balance amount corresponding to that particular benefit paid to the
Executive in a single lump sum. The board of directors shall have sole and
absolute discretion about whether to pay the remaining Accrual Balance in a lump
sum. If payment of the remaining Accrual Balance is paid in a single lump sum,
the Bank shall have no further obligations under this Agreement.

         2.6      Change-in-Control Payout of Vested Normal Retirement Benefit,
Vested Early Termination Benefit or Vested Disability Benefit Being Paid to the
Executive at the Time of a Change in Control. If a Change in Control occurs at
any time during the entire 10-year salary continuation benefit payment period
and if at the time of that Change in Control the Executive is receiving the
benefit provided by Section 2.1.2, Section 2.2.2, or Section 2.3.2, the Bank
shall pay the remaining salary continuation benefits to the Executive in a lump
sum within three days after the Change in Control. The lump-sum payment due to
the Executive as a result of a Change in Control shall be an amount equal to the
Accrual Balance amount corresponding to that particular benefit then being paid.

         2.7      Contradiction in Terms of Agreement and Schedule A. If there
is a contradiction between the terms of this Agreement and Schedule A concerning
the amount due the Executive, the amount of the benefit due the Executive shall
be determined by this Agreement without regard to Schedule A.

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                                    ARTICLE 3
                                 DEATH BENEFITS

         3.1      Split Dollar Agreement Death Benefit Solely for Death During
Active Service. Except as provided in Section 5.2, if the Executive dies in
active service to the Bank before Normal Retirement Age, instead of any benefit
payable under this Agreement the Bank shall pay to the Executive's
beneficiary(ies) the benefit described in the Split Dollar Agreement and
Endorsement attached to this Agreement as Addendum A. If the Executive dies
after Termination of Employment, the Executive and his beneficiary(ies) shall be
entitled to no benefits under the Split Dollar Agreement and Endorsement
attached to this Agreement as Addendum A.

         3.2      Death After Termination of Employment. If the Executive is
entitled to benefit payments under Article 2 but dies before payments commence
or before receiving all such payments, the benefits or remaining benefits shall
be payable to the Executive's beneficiary(ies) at the same time and in the same
amounts they would have been paid to the Executive had the Executive survived.

         3.3      Petition for Benefit Payments. If the Executive dies before
receiving any or all benefit payments to which he is entitled under Section 2.1,
Section 2.2, or Section 2.3, the Executive's beneficiary(ies) or estate may
petition the Bank's board of directors to have the Accrual Balance corresponding
to that particular benefit paid to the Executive's beneficiary(ies) or estate in
a single lump sum. The board of directors shall have sole and absolute
discretion about whether to pay the remaining Accrual Balance in a lump sum. If
payment of the remaining Accrual Balance is paid in a single lump sum, the Bank
shall have no further obligations under this Agreement.

         3.4      Change-in-Control Payout of Vested Normal Retirement Benefit,
Vested Early Termination Benefit or Vested Disability Benefit Being Paid to the
Executive's Estate or Beneficiaries at the Time of a Change in Control. If a
Change in Control occurs at any time during the entire 10-year salary
continuation benefit payment period and if at the time of that Change in Control
the Executive's estate or beneficiary(ies) is receiving the benefit provided by
Section 2.1.2, Section 2.2.2, or Section 2.3.2, the Bank shall pay the remaining
salary continuation benefits to the Executive's beneficiary(ies) or estate in a
lump sum within three days after the Change in Control. The lump-sum payment due
to the Executive's beneficiary(ies) or estate as a result of a Change in Control
shall be an amount equal to the Accrual Balance amount corresponding to that
particular benefit then being paid.

                                    ARTICLE 4
                                  BENEFICIARIES

         4.1      Beneficiary Designations. The Executive shall designate a
beneficiary or beneficiaries by filing a written designation with the Bank. The
Executive may revoke or modify the designation at any time by filing a new
designation. However, designations will be effective only if signed by the
Executive and accepted by the Bank during the Executive's lifetime. The
Executive's beneficiary designation shall be deemed automatically revoked if the
beneficiary predeceases the Executive, or if the Executive names a spouse as
beneficiary and the marriage is subsequently dissolved. If the Executive dies
without a valid beneficiary designation, all payments shall be made to the
Executive's estate.

         4.2      Facility of Payment. If a benefit is payable to a minor, to a
person declared incapacitated, or to a person incapable of handling the
disposition of his or her property, the Bank may pay such benefit to the
guardian, legal representative, or person having the care or custody of such
minor, incapacitated person, or incapable person. The Bank may require such
proof of incapacity, minority, or guardianship as the Bank deems appropriate
before distribution of the benefit. Distribution shall completely discharge the
Bank from all liability for such benefit.

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                                    ARTICLE 5
                               GENERAL LIMITATIONS

         5.1      Termination for Cause. Notwithstanding any provision of this
Agreement to the contrary, the Bank shall not pay any benefit under this
Agreement if Termination of Employment is a result of Termination for Cause.

         5.2      Suicide or Misstatement. The Bank shall not pay any benefit
under this Agreement if the Executive commits suicide within three years after
the date of this Agreement. Additionally, the Bank shall not pay any benefit
under this Agreement if the Executive has made any material misstatement of fact
on any application or resume provided to the Bank, or on any application for any
benefits provided by the Bank to the Executive.

         5.3      Removal. Notwithstanding any provision of this Agreement to
the contrary, if the Executive is removed from office or permanently prohibited
from participating in the Bank's affairs by an order issued under section
8(e)(4) or (g)(1) of the Federal Deposit Insurance Act, 12 U.S.C. 1818(e)(4) or
(g)(1), all obligations of the Bank under this Agreement shall terminate as of
the effective date of the order.

         5.4      Default. Notwithstanding any provision of this Agreement to
the contrary, if the Bank is in "default" or "in danger of default," as those
terms are defined in section 3(x) of the Federal Deposit Insurance Act, 12
U.S.C. 1813(x), all obligations under this Agreement shall terminate.

         5.5      FDIC Open-Bank Assistance. All obligations under this
Agreement shall be terminated, except to the extent determined that continuation
of the contract is necessary for the continued operation of the Bank, at the
time the Federal Deposit Insurance Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the authority contained in
section 13(c) of the Federal Deposit Insurance Act. 12 U.S.C. 1823(c). Any
rights of the parties that have already vested, however, shall not be affected
by such action.

                                    ARTICLE 6
                          CLAIMS AND REVIEW PROCEDURES

         6.1      Claims Procedure. A person or beneficiary (a "claimant") who
has not received benefits under the Agreement that he or she believes should be
paid shall make a claim for such benefits as follows:

         6.1.1    Initiation - Written Claim. The claimant initiates a claim by
                  submitting to the Bank a written claim for the benefits.

         6.1.2    Timing of Bank Response. The Bank shall respond to such
                  claimant within 90 days after receiving the claim. If the Bank
                  determines that special circumstances require additional time
                  for processing the claim, the Bank can extend the response
                  period by an additional 90 days by notifying the claimant in
                  writing, prior to the end of the initial 90-day period, that
                  an additional period is required. The notice of extension must
                  set forth the special circumstances and the date by which the
                  Bank expects to render its decision.

         6.1.3    Notice of Decision. If the Bank denies part or all of the
                  claim, the Bank shall notify the claimant in writing of such
                  denial. The Bank shall write the notification in a manner
                  calculated to be understood by the claimant. The notification
                  shall set forth:

                  6.1.3.1  The specific reasons for the denial,

                  6.1.3.2  A reference to the specific provisions of the
                           Agreement on which the denial is based,

                  6.1.3.3  A description of any additional information or
                           material necessary for the claimant to perfect the
                           claim and an explanation of why it is needed, 6.1.3.4
                           An explanation of the Agreement's review procedures
                           and the time limits applicable to such procedures,
                           and

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                  6.1.3.5  A statement of the claimant's right to bring a civil
                           action under ERISA (Employee Retirement Income
                           Security Act) Section 502(a) following an adverse
                           benefit determination on review.

         6.2      Review Procedure. If the Bank denies part or all of the claim,
the claimant shall have the opportunity for a full and fair review by the Bank
of the denial, as follows:

         6.2.1    Initiation - Written Request. To initiate the review, the
                  claimant, within 60 days after receiving the Bank's notice of
                  denial, must file with the Bank a written request for review.

         6.2.2    Additional Submissions - Information Access. The claimant
                  shall then have the opportunity to submit written comments,
                  documents, records and other information relating to the
                  claim. The Bank shall also provide the claimant, upon request
                  and free of charge, reasonable access to, and copies of, all
                  documents, records and other information relevant (as defined
                  in applicable ERISA regulations) to the claimant's claim for
                  benefits.

         6.2.3    Considerations on Review. In considering the review, the Bank
                  shall take into account all materials and information the
                  claimant submits relating to the claim, without regard to
                  whether such information was submitted or considered in the
                  initial benefit determination.

         6.2.4    Timing of Bank Response. The Bank shall respond in writing to
                  such claimant within 60 days after receiving the request for
                  review. If the Bank determines that special circumstances
                  require additional time for processing the claim, the Bank can
                  extend the response period by an additional 60 days by
                  notifying the claimant in writing, prior to the end of the
                  initial 60-day period, that an additional period is required.
                  The notice of extension must set forth the special
                  circumstances and the date by which the Bank expects to render
                  its decision.

         6.2.5    Notice of Decision. The Bank shall notify the claimant in
                  writing of its decision on review. The Bank shall write the
                  notification in a manner calculated to be understood by the
                  claimant. The notification shall set forth:

                  6.2.5.1  The specific reasons for the denial,

                  6.2.5.2  A reference to the specific provisions of the
                           Agreement on which the denial is based,

                  6.2.5.3  A statement that the claimant is entitled to receive,
                           upon request and free of charge, reasonable access
                           to, and copies of, all documents, records and other
                           information relevant (as defined in applicable ERISA
                           regulations) to the claimant's claim for benefits,
                           and

                  6.2.5.4  A statement of the claimant's right to bring a civil
                           action under ERISA Section 502(a).

                                    ARTICLE 7
                           ADMINISTRATION OF AGREEMENT

         7.1      Plan Administrator Duties. This Agreement shall be
administered by a Plan Administrator consisting of the board or such committee
or person(s) as the board shall appoint. The Executive may be a member of the
Plan Administrator. The Plan Administrator shall also have the discretion and
authority to (a) make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of this Agreement and (b) decide or resolve
any and all questions, including interpretations of this Agreement, as may arise
in connection with the Agreement.

         7.2      Agents. In the administration of this Agreement, the Plan
Administrator may employ agents and delegate to them such administrative duties
as it sees fit (including acting through a duly appointed representative) and
may from time to time consult with counsel, who may be counsel to the Bank.

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         7.3      Binding Effect of Decisions. The decision or action of the
Plan Administrator with respect to any question arising out of or in connection
with the administration, interpretation, and application of the Agreement and
the rules and regulations promulgated hereunder shall be final and conclusive
and binding upon all persons having any interest in the Agreement. No Executive
or Beneficiary shall be deemed to have any right, vested or nonvested, regarding
the continued use of any previously adopted assumptions, including but not
limited to the discount rate and calculation method employed in the
determination of the Accrual Balance.

         7.4      Indemnity of Plan Administrator. The Bank shall indemnify and
hold harmless the members of the Plan Administrator against any and all claims,
losses, damages, expenses, or liabilities arising from any action or failure to
act with respect to this Agreement, except in the case of willful misconduct by
the Plan Administrator or any of its members.

         7.5      Bank Information. To enable the Plan Administrator to perform
its functions, the Bank shall supply full and timely information to the Plan
Administrator on all matters relating to the date and circumstances of the
retirement, Disability, death, or Termination of Employment of the Executive,
and such other pertinent information as the Plan Administrator may reasonably
require.

                                    ARTICLE 8
                                  MISCELLANEOUS

         8.1      Amendments and Termination. Subject to Section 8.15 of this
Agreement, this Agreement may be amended or terminated solely by a written
agreement signed by the Bank and the Executive.

         8.2      Binding Effect. This Agreement shall bind the Executive and
the Bank and their beneficiaries, survivors, executors, successors,
administrators, and transferees.

         8.3      No Guarantee of Employment. This Agreement is not an
employment policy or contract. It does not give the Executive the right to
remain an employee of the Bank, nor does it interfere with the Bank's right to
discharge the Executive. It also does not require the Executive to remain an
employee nor interfere with the Executive's right to terminate employment at any
time.

         8.4      Non-Transferability. Benefits under this Agreement cannot be
sold, transferred, assigned, pledged, attached, or encumbered in any manner.

         8.5      Successors; Binding Agreement. By an assumption agreement in
form and substance satisfactory to the Executive, the Bank will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Bank to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Bank would be required to perform this Agreement if no
such succession had occurred. The Bank's failure to obtain such an assumption
agreement before the succession becomes effective shall be considered a breach
of this Agreement and shall entitle the Executive to the Change-in-Control
benefit provided in Section 2.4.

         8.6      Tax Withholding. The Bank shall withhold any taxes that are
required to be withheld from the benefits provided under this Agreement.

         8.7      Applicable Law. Except to the extent preempted by the laws of
the United States of America, the validity, interpretation, construction, and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of Idaho, without giving effect to the principles of
conflict of laws of such state.

         8.8      Unfunded Arrangement. The Executive and the Executive's
beneficiary(ies) are general unsecured creditors of the Bank for the payment of
benefits under this Agreement. The benefits represent the mere promise by the
Bank to pay such benefits. The rights to benefits are not subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by creditors. Any insurance on the Executive's life
is a general asset of the Bank to which the Executive and beneficiary(ies) have
no preferred or secured claim.

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               8.9 Severability. If for any reason any provision of this
Agreement is held invalid, such invalidity shall not affect any other provision
of this Agreement, and each such other provision shall continue in full force
and effect to the full extent consistent with law. If any provision of this
Agreement is held invalid in part, such invalidity shall not affect the
remainder of the provision, and the remainder of such provision together with
all other provisions of this Agreement shall continue in full force and effect
to the full extent consistent with law.

         8.10     Headings. The headings of sections herein are included solely
for convenience of reference and shall not affect the meaning or interpretation
of any provision of this Agreement.

         8.11     Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand or mailed, certified or registered mail, return
receipt requested, with postage prepaid, to the following addresses or to such
other address as either party may designate by like notice.

               (a)   If to the Bank, to:
                     Board of Directors
                     Panhandle State Bank
                     Third and Oak Streets
                     Sandpoint, Idaho 83864

               (b)   If to the Executive, to:
                     Jerrold B. Smith
                     Panhandle State Bank
                     Third and Oak Streets
                     Sandpoint, Idaho 83864

and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.

         8.12     Entire Agreement. This Agreement constitutes the entire
agreement between the Bank and the Executive concerning the subject matter
hereof. No rights are granted to the Executive under this Agreement other than
those specifically set forth herein. The Executive acknowledges and agrees that
this Agreement satisfies in full Bancorp's and the Bank's obligation to provide
a salary continuation plan for the benefit of the Executive, which obligation is
stated in section 8 of the Executive Employment Agreement dated as of January 1,
2002 by and among the Executive, Bancorp, and the Bank.

         8.13     Payment of Legal Fees. The Bank is aware that after a Change
in Control management of the Bank could cause or attempt to cause the Bank to
refuse to comply with its obligations under this Agreement, or institute or
cause or attempt to cause the Bank to institute litigation seeking to have this
Agreement declared unenforceable, or take or attempt to take other action to
deny the Executive the benefits intended under this Agreement. In these
circumstances, the purpose of this Agreement could be frustrated. It is the
intent of the Bank that the Executive not be required to incur the expenses
associated with the enforcement of his rights under this Agreement by litigation
or other legal action because the cost and expense thereof would substantially
detract from the benefits intended to be extended to the Executive hereunder,
nor be bound to negotiate any settlement of his rights hereunder under threat of
incurring such expenses. Accordingly, if after a Change in Control (a) it
appears to the Executive that the Bank has failed to comply with any of its
obligations under this Agreement, or (b) the Bank or any other person takes any
action to declare this Agreement void or unenforceable, or institutes any
litigation or other legal action designed to deny, diminish, or to recover from
the Executive the benefits intended to be provided to the Executive hereunder,
the Bank irrevocably authorizes the Executive from time to time to retain
counsel of his choice at the expense of the Bank as provided in this Section
8.13, to represent the Executive in the initiation or defense of any litigation
or other legal action, whether by or against the Bank or any director, officer,
stockholder, or other person affiliated with the Bank, in any jurisdiction. The
fees and expenses of counsel selected from time to time by the Executive as
herein above provided shall be paid or reimbursed to the Executive by the Bank
on a regular, periodic basis upon presentation by the Executive of a statement
or statements prepared by such counsel in

                                        9
<PAGE>

accordance with such counsel's customary practices, up to a maximum aggregate
amount of $500,000. The Bank's obligation to pay the Executive's legal fees
provided by this Section 8.13 operates separately from, and in addition to, any
legal fee reimbursement obligation the Bank or Bancorp may have with the
Executive under an employment or other agreement.

         8.14     Excise Tax Under Internal Revenue Code Sections 280G and 4999.
(a) Partial Reimbursement of Excise Tax. If a Change in Control occurs the
Executive may become entitled to acceleration of benefits under this Agreement
or under any other plan or agreement of or with the Bank or Bancorp, including
accelerated vesting of stock options and acceleration of benefits under any
other benefit, compensation, or incentive plan or arrangement with the Bank or
Bancorp (collectively, the "Total Benefits"). If a Change in Control occurs,
Bancorp and the Bank shall cause the certified public accounting firm retained
by Bancorp as of the date immediately before the Change in Control (the
"Accounting Firm") to calculate the Total Benefits and any excise tax payable by
the Executive under sections 280G and 4999 based upon the Total Benefits. If the
Accounting Firm determines that an excise tax is payable, at the same time the
Bank pays the Change in Control benefit under Section 2.4 of this Agreement the
Bank shall also pay to the Executive an amount in cash equal to the excise tax
calculated by the Accounting Firm (the "Excise Tax"). The Executive acknowledges
and agrees that this Section 8.14 provides for partial reimbursement only of the
final excise tax that may be payable by him, and that additional unreimbursed
excise taxes may be payable by him after taking into account the reimbursement
payment provided under this Section 8.14. The partial reimbursement of the
excise tax under this Section 8.14 shall be made in addition to the amount set
forth in Section 2.4.

         (b)      Calculating the Excise Tax. For purposes of determining
whether any of the Total Benefits will be subject to the Excise Tax and for
purposes of determining the amount of the Excise Tax,

         (1)      Determination of "Parachute Payments" Subject to the Excise
                  Tax: any other payments or benefits received or to be received
                  by the Executive in connection with a Change in Control or the
                  Executive's Termination of Employment (whether under the terms
                  of this Agreement or any other agreement, stock option plan or
                  any other benefit plan or arrangement with the Bank or
                  Bancorp, any person whose actions result in a Change in
                  Control or any person affiliated with the Bank, Bancorp, or
                  such person) shall be treated as "parachute payments" within
                  the meaning of section 280G(b)(2) of the Internal Revenue
                  Code, and all "excess parachute payments" within the meaning
                  of section 280G(b)(1) shall be treated as subject to the
                  Excise Tax, unless in the opinion of the Accounting Firm such
                  other payments or benefits do not constitute (in whole or in
                  part) parachute payments, or such excess parachute payments
                  represent (in whole or in part) reasonable compensation for
                  services actually rendered within the meaning of section
                  280G(b)(4) of the Internal Revenue Code in excess (as defined
                  in section 280G(b)(3) of the Internal Revenue Code), or are
                  otherwise not subject to the Excise Tax,

         (2)      Calculation of Benefits Subject to Excise Tax: the amount of
                  the Total Benefits that shall be treated as subject to the
                  Excise Tax shall be equal to the lesser of (a) the total
                  amount of the Total Benefits reduced by the amount of such
                  Total Benefits that in the opinion of the Accounting Firm are
                  not parachute payments, or (b) the amount of excess parachute
                  payments within the meaning of section 280G(b)(1) (after
                  applying clause (1), above), and

         (3)      Value of Noncash Benefits and Deferred Payments: the value of
                  any noncash benefits or any deferred payment or benefit shall
                  be determined by the Accounting Firm in accordance with the
                  principles of sections 280G(d)(3) and (4) of the Internal
                  Revenue Code.

         (c)      Assumed Marginal Income Tax Rate. For purposes of determining
                  the amount of the partial Excise Tax reimbursement payment to
                  be made under this Section 8.14, the Executive shall be deemed
                  to pay federal income taxes at the highest marginal rate of
                  federal income taxation in the calendar year in which the
                  partial Excise Tax reimbursement under this Section 8.14 is to
                  be made and state and local income taxes at the highest

                                       10
<PAGE>
marginal rate of taxation in the state and locality of the Executive's residence
on the date of Termination of Employment, net of the reduction in federal income
taxes that can be obtained from deduction of such state and local taxes
(calculated by assuming that any reduction under section 68 of the Internal
Revenue Code in the amount of itemized deductions allowable to the Executive
applies first to reduce the amount of such state and local income taxes that
would otherwise be deductible by the Executive, and applicable federal FICA and
Medicare withholding taxes).

         (d)      Accounting Firm's Determinations Are Final and Binding. All
determinations made by the Accounting Firm under this Section 8.14 shall be
final and binding on the Bank, Bancorp, and the Executive. All determinations
required to be made under this Section 8.14 - including the assumptions used to
calculate Total Benefits and the Excise Tax - shall be made by the Accounting
Firm, which shall provide detailed supporting calculations both to the Bank and
the Executive.

         8.15     Termination or Modification of Agreement Because of Changes in
Tax Statutes, Rules, or Regulations. The Bank is entering into this Agreement on
the assumption that certain existing tax statutes, rules, and regulations will
continue in effect in their current form. If that assumption materially changes
and the change has a material detrimental effect on this Agreement, the Bank
reserves the right to terminate or modify this Agreement accordingly, subject to
obtaining the written consent of the Executive, which shall not be unreasonably
withheld. This Section 8.15 shall become null and void effective immediately
upon a Change in Control.

         IN WITNESS WHEREOF, the Executive and a duly authorized Bank officer
have executed this Agreement as of the date first written above.

THE EXECUTIVE:                           THE BANK:
                                             PANHANDLE STATE BANK

______________________________
Jerrold B. Smith                         By: _________________________________

                                         Its: ________________________________

         Notwithstanding any existing or previous attorney_client relationship
between Intermountain Community Bancorp and any counsel chosen by the Executive
under Section 8.13, Intermountain Community Bancorp irrevocably consents to the
Executive's entering into an attorney_client relationship with that counsel, and
Intermountain Community Bancorp agrees that a confidential relationship shall
exist between the Executive and that counsel.

                                        INTERMOUNTAIN COMMUNITY BANCORP

                                        By: __________________________________

                                        Its: _________________________________

                                       11
<PAGE>

                             BENEFICIARY DESIGNATION

                              PANHANDLE STATE BANK
                          SALARY CONTINUATION AGREEMENT

         I designate the following as beneficiary of any death benefits under
this Salary Continuation Agreement:

Primary: _______________________________________________________________________

Contingent: ____________________________________________________________________

         NOTE:    TO NAME A TRUST AS BENEFICIARY, PLEASE PROVIDE THE NAME OF THE
                  TRUSTEE(S) AND THE EXACT NAME AND DATE OF THE TRUST AGREEMENT.

         I understand that I may change these beneficiary designations by filing
a new written designation with the Bank. I further understand that the
designations will be automatically revoked if the beneficiary predeceases me, or
if I have named my spouse as beneficiary and our marriage is subsequently
dissolved.

Signature: ___________________________________
           Jerrold B. Smith

Date:      __________________________________, 2003

Accepted by the Bank this __________________ day of ________________, 2003.

By:_______________________________

Title:____________________________

                                       12
<PAGE>

                                   SCHEDULE A
                              PANHANDLE STATE BANK
                          SALARY CONTINUATION AGREEMENT
                                JERROLD B. SMITH

<TABLE>
<CAPTION>
                                                    EARLY
                                                 TERMINATION
        PLAN                                    ANNUAL BENEFIT      DISABILITY
        YEAR     AGE AT                           PAYABLE AT      ANNUAL BENEFIT    CHANGE-IN-
        ENDING    PLAN     ACCRUAL     VESTED       NORMAL          PAYABLE AT    CONTROL BENEFIT
 PLAN  DECEMBER   YEAR     BALANCE     ACCRUAL  RETIREMENT AGE        NORMAL        PAYABLE IN A
 YEAR     31,     END       (1)        BALANCE      (2)           RETIREMENT AGE     LUMP SUM
-----  --------  ------  -----------  --------  ---------------   --------------  ---------------
<S>    <C>       <C>     <C>          <C>       <C>               <C>             <C>
1       2002      46     $    21,560  $      0    $       0         $  7,398        $  323,406

2       2003      47     $    46,139  $      0    $       0         $  14,795       $  346,044

3       2004      48     $    74,053  $      0    $       0         $  22,193       $  370,267

4       2005      49     $   105,650  $      0    $       0         $  29,590       $  396,186

5       2006      50     $   141,306  $      0    $       0         $  36,988       $  423,919

6       2007      51     $   181,437  $      0    $       0         $  44,385       $  453,594

7       2008      52     $   226,494  $      0    $       0         $  51,783       $  485,345

8       2009      53     $   276,970  $      0    $       0         $  59,180       $  519,319

9       2010      54     $   333,403  $      0    $       0         $  66,578       $  555,672

10      2011      55     $   396,379  $      0    $       0         $  73,975       $  594,569

11      2012      56     $   466,538  $466,538    $  81,373         $  81,373       $  636,188

12      2013      57     $   544,577  $544,577    $  88,770         $  88,770       $  680,722

13      2014      58     $   631,256  $631,256    $  96,168         $  96,168       $  728,372

14      2015      59     $   727,401  $727,401    $ 103,566         $ 103,566       $  779,358

15      2016      60     $   833,913  $833,913    $ 110,963         $ 110,963       $  833,913

16      2017      61     $   773,557  $773,557

17      2018      62     $   708,975  $708,975

18      2019      63     $   639,873  $639,873

19      2020      64     $   565,934  $565,934

20      2021      65     $   486,819  $486,819

21      2022      66     $   402,166  $402,166

22      2023      67     $   311,587  $311,587
</TABLE>

                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                    EARLY
                                                 TERMINATION
        PLAN                                    ANNUAL BENEFIT      DISABILITY
        YEAR     AGE AT                           PAYABLE AT      ANNUAL BENEFIT    CHANGE-IN-
        ENDING    PLAN     ACCRUAL     VESTED       NORMAL          PAYABLE AT    CONTROL BENEFIT
 PLAN  DECEMBER   YEAR     BALANCE     ACCRUAL  RETIREMENT AGE        NORMAL        PAYABLE IN A
 YEAR     31,     END       (1)        BALANCE      (2)           RETIREMENT AGE     LUMP SUM
-----  --------  ------  -----------  --------  ---------------   --------------  ---------------
<S>    <C>       <C>     <C>          <C>       <C>               <C>             <C>
23      2024      68     $   214,668  $214,668

24      2025      69     $   110,964  $110,964

25      2026      70     $         0  $0
</TABLE>

         (1)      Calculations are approximations. Benefit calculations are
based on prior year-end accrual balances. The accrual balance reflects payment
at the beginning of each month during retirement, beginning in October 2016.

         (2)      Early termination benefits are not payable if Termination of
Employment occurs within 10 years after the Effective Date of the Agreement.

                                       14

<PAGE>


                                   ADDENDUM A
                              PANHANDLE STATE BANK
                             SPLIT DOLLAR AGREEMENT

         THIS SPLIT DOLLAR AGREEMENT is entered into as of this ____  day of
____ , 2003, by and between Panhandle State Bank, an Idaho-chartered,
FDIC-insured bank with its main office in Sandpoint, Idaho (the "Bank") and
Jerrold B. Smith, President of the Bank (the "Executive"). This Split Dollar
Agreement shall append the Split Dollar Policy Endorsement entered into on even
date herewith, or as subsequently amended, by and between the aforementioned
parties.

         To encourage the Executive to remain an employee of the Bank, the Bank
is willing to divide the death proceeds of a life insurance policy on the
Executive's life to be effective until the Executive's Normal Retirement Age of
60. The Bank will pay life insurance premiums from its general assets.

                                    ARTICLE 1
                               GENERAL DEFINITIONS

         Capitalized terms not otherwise defined in this Split Dollar Agreement
are used herein as defined in the Salary Continuation Agreement dated as of the
date of this Split Dollar Agreement between the Bank and the Executive. The
following terms shall have the meanings specified:

         1.1      Administrator means the administrator described in Article 7.

         1.2      Executive's Interest means the benefit set forth in Section
                  2.2.

         1.3      Insured means the Executive.

         1.4      Insurer means each life insurance carrier for which there is a
                  Split Dollar Policy Endorsement attached to this Split Dollar
                  Agreement.

         1.5      Net Death Proceeds means the total death proceeds of the
                  Policy minus the cash surrender value.

         1.6      Policy means the specific life insurance policy or policies
                  issued by the Insurer(s).

         1.7      Split Dollar Policy Endorsement means the form required by the
                  Administrator or the Insurer to indicate the Executive's
                  interest, if any, in a Policy on the Executive's life.

                                    ARTICLE 2
                           POLICY OWNERSHIP/INTERESTS

         2.1      Bank Ownership. The Bank is the sole owner of the Policy and
shall have the right to exercise all incidents of ownership. The Bank shall be
the beneficiary of any death proceeds remaining after the Executive's interest
has been paid under Section 2.2 of this Split Dollar Agreement.

         2.2      Executive's Interest. The Executive shall have the right to
designate the beneficiary(ies) of the Executive's Interest, which shall be an
amount equal to 833,913 of the Net Death Proceeds. The Executive shall also have
the right to elect and change settlement options specified in the Policy that
may be permitted. However, the Executive, the Executive's transferee, or the
Executive's beneficiary(ies) shall have no rights or interests in the Policy for
that portion of the death proceeds designated in this Section 2.2 if the
Executive is not in the full-time employment of the Bank at the time of death,
except for reason of a leave of absence approved by the Bank, or if benefits
under the Salary Continuation Agreement of even date herewith are denied under
Article 5 of that Salary Continuation Agreement.

         2.3      Option to Purchase. The Bank shall not sell, surrender, or
transfer ownership of the Policy while this Split Dollar Agreement is in effect
without first giving the Executive or the Executive's transferee a right of
first refusal to purchase the Policy for the Policy's interpolated terminal
reserve value. The right of first refusal to

<PAGE>

purchase the Policy must be exercised within 60 days from the date the Bank
gives written notice of the Bank's intention to sell, surrender or transfer
ownership of the Policy. This provision shall not impair the right of the Bank
to terminate this Split Dollar Agreement.

         2.4      Comparable Coverage. Upon execution of this Split Dollar
Agreement, the Bank shall maintain the Policy in full force and effect, and the
Bank shall not amend, terminate, or otherwise abrogate the Executive's interest
in the Policy unless the Bank (a) replaces the Policy with a comparable
insurance policy to cover the benefit provided under this Split Dollar Agreement
and (b) executes a new Split Dollar Agreement and Endorsement for the comparable
insurance policy. The Policy or any comparable policy shall be subject to the
claims of the Bank's creditors.

                                    ARTICLE 3
                                    PREMIUMS

         3.1      Premium Payment. The Bank shall pay any premiums due on the
Policy.

         3.2      Imputed Income. The Bank shall impute income to the Executive
in an amount equal to (a) the current term rate for the Executive's age,
multiplied by (b) the net death benefit payable to the Executive's
beneficiary(ies). The "current term rate" is the minimum amount required to be
imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable
authority.

                                    ARTICLE 4
                                   ASSIGNMENT

         The Executive may assign without consideration all interests in the
Policy and in this Split Dollar Agreement to any person, entity, or trust. If
the Executive transfers all of the Executive's interest in the Policy, then all
of the Executive's interest in the Policy and in the Split Dollar Agreement
shall be vested in the Executive's transferee, who shall be substituted as a
party hereunder, and the Executive shall have no further interest in the Policy
or in this Split Dollar Agreement.

                                    ARTICLE 5
                                     INSURER

         The Insurer shall be bound only by the terms of the Policy. Any
payments the Insurer makes or actions it takes in accordance with the Policy
shall fully discharge it from all claims, suits, and demands of all entities or
persons. The Insurer shall not be bound by or be deemed to have notice of the
provisions of this Split Dollar Agreement.

                                    ARTICLE 6
                                CLAIMS PROCEDURE

         6.1      Claims Procedure. A person or beneficiary (a "claimant") who
has not received benefits under the Split Dollar Agreement that he or she
believes should be paid shall make a claim for such benefits as follows:

         6.1.1    Initiation - Written Claim. The claimant initiates a claim by
                  submitting to the Bank a written claim for the benefits.

         6.1.2    Timing of Bank Response. The Bank shall respond to such
                  claimant within 90 days after receiving the claim. If the Bank
                  determines that special circumstances require additional time
                  for processing the claim, the Bank can extend the response
                  period by an additional 90 days by notifying the claimant in
                  writing, prior to the end of the initial 90-day period, that
                  an additional period is required. The notice of extension must
                  set forth the special circumstances and the date by which the
                  Bank expects to render its decision.

                                        2
<PAGE>

         6.1.3    Notice of Decision. If the Bank denies part or all of the
                  claim, the Bank shall notify the claimant in writing of such
                  denial. The Bank shall write the notification in a manner
                  calculated to be understood by the claimant. The notification
                  shall set forth:

                  6.1.3.1  The specific reasons for the denial,

                  6.1.3.2  A reference to the specific provisions of the Split
                           Dollar Agreement on which the denial is based,

                  6.1.3.3  A description of any additional information or
                           material necessary for the claimant to perfect the
                           claim and an explanation of why it is needed,

                  6.1.3.4  An explanation of the Split Dollar Agreement's review
                           procedures and the time limits applicable to such
                           procedures, and

                  6.1.3.5  A statement of the claimant's right to bring a civil
                           action under ERISA Section 502(a) following an
                           adverse benefit determination on review.

         6.2      Review Procedure. If the Bank denies part or all of the claim,
the claimant shall have the opportunity for a full and fair review by the Bank
of the denial, as follows:

         6.2.1    Initiation - Written Request. To initiate the review, the
                  claimant, within 60 days after receiving the Bank's notice of
                  denial, must file with the Bank a written request for review.

         6.2.2    Additional Submissions - Information Access. The claimant
                  shall then have the opportunity to submit written comments,
                  documents, records and other information relating to the
                  claim. The Bank shall also provide the claimant, upon request
                  and free of charge, reasonable access to, and copies of, all
                  documents, records and other information relevant (as defined
                  in applicable ERISA regulations) to the claimant's claim for
                  benefits.

         6.2.3    Considerations on Review. In considering the review, the Bank
                  shall take into account all materials and information the
                  claimant submits relating to the claim, without regard to
                  whether such information was submitted or considered in the
                  initial benefit determination.

         6.2.4    Timing of Bank Response. The Bank shall respond in writing to
                  such claimant within 60 days after receiving the request for
                  review. If the Bank determines that special circumstances
                  require additional time for processing the claim, the Bank can
                  extend the response period by an additional 60 days by
                  notifying the claimant in writing, prior to the end of the
                  initial 60-day period, that an additional period is required.
                  The notice of extension must set forth the special
                  circumstances and the date by which the Bank expects to render
                  its decision.

         6.2.5    Notice of Decision. The Bank shall notify the claimant in
                  writing of its decision on review. The Bank shall write the
                  notification in a manner calculated to be understood by the
                  claimant. The notification shall set forth:

                  6.2.5.1  The specific reason for the denial,

                  6.2.5.2  A reference to the specific provisions of the Split
                           Dollar Agreement on which the denial is based,

                  6.2.5.3  A statement that the claimant is entitled to receive,
                           upon request and free of charge, reasonable access
                           to, and copies of, all documents, records and other
                           information relevant (as defined in applicable ERISA
                           regulations) to the claimant's claim for benefits,
                           and

                                        3
<PAGE>

                  6.2.5.4  A statement of the claimant's right to bring a civil
                           action under ERISA Section 502(a).

                                    ARTICLE 7
                    ADMINISTRATION OF SPLIT DOLLAR AGREEMENT

         7.1      Administrator Duties. This Split Dollar Agreement shall be
administered by an Administrator, which shall consist of the board or such
committee as the board shall appoint. The Executive may be a members of the
Administrator. The Administrator shall also have the discretion and authority to
(a) make, amend, interpret, and enforce all appropriate rules and regulations
for the administration of this Split Dollar Agreement and (b) decide or resolve
any and all questions, including interpretations of this Split Dollar Agreement,
as may arise in connection with the Split Dollar Agreement.

         7.2      Agents. In the administration of this Split Dollar Agreement,
the Administrator may employ agents and delegate to them such administrative
duties as it sees fit (including acting through a duly appointed representative)
and may from time to time consult with counsel, who may be counsel to the Bank.

         7.3      Binding Effect of Decisions. The decision or action of the
Administrator with respect to any question arising out of or in connection with
the administration, interpretation, and application of this Split Dollar
Agreement and the rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the Split Dollar
Agreement.

         7.4      Indemnity of Administrator. The Bank shall indemnify and hold
harmless the members of the Administrator against any and all claims, losses,
damages, expenses, or liabilities arising from any action or failure to act with
respect to this Split Dollar Agreement, except in the case of willful misconduct
by the Administrator or any of its members.

         7.5      Information. To enable the Administrator to perform its
functions, the Bank shall supply full and timely information to the
Administrator on all matters relating to the date and circumstances of the
retirement, death, or Termination of Employment of the Executive and such other
pertinent information as the Administrator may reasonably require.

                                    ARTICLE 8
                                  MISCELLANEOUS

         8.1      Amendment and Termination. Subject to Section 8.11 of this
Split Dollar Agreement, this Split Dollar Agreement may be amended or terminated
solely by a writing signed by the Bank and the Executive. However, this Split
Dollar Agreement will terminate automatically and the Executive's interest shall
be forfeited if benefits under the Salary Continuation Agreement are neither
paid nor payable because of termination under Article 5 of the Salary
Continuation Agreement. This Split Dollar Agreement shall also terminate upon
the occurrence of any one of the following:

         (a)      Surrender, lapse, or other termination of the Policy by the
                  Bank, or

         (b)      Distribution of the death benefit proceeds in accordance with
                  Section 2.2 above.

         8.2      Binding Effect. This Split Dollar Agreement shall bind the
Executive and the Bank and their beneficiaries, survivors, executors,
administrators, transferees, and any Policy beneficiary.

         8.3      No Guarantee of Employment. This Split Dollar Agreement is not
an employment policy or contract. It does not give the Executive the right to
remain an employee of the Bank, nor does it interfere with the Bank's right to
discharge the Executive. It also does not require the Executive to remain an
employee nor interfere with the Executive's right to terminate employment at any
time.

                                        4
<PAGE>

         8.4      Successors; Binding Agreement. By an assumption agreement in
form and substance satisfactory to the Executive, the Bank shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Bank to
expressly assume and agree to perform this Split Dollar Agreement in the same
manner and to the same extent that the Bank would be required to perform this
Split Dollar Agreement if no succession had occurred. The Bank's failure to
obtain such an assumption agreement before succession becomes effective shall be
considered a breach of the Split Dollar Agreement and shall entitle the
Executive to the Change-in-Control Benefits payable under Section 2.4 of the
Salary Continuation Agreement between the Bank and the Executive of even date
herewith.

         8.5      Applicable Law. The Split Dollar Agreement and all rights
hereunder shall be governed by and construed according to the laws of the State
of Idaho, except to the extent preempted by the laws of the United States of
America.

         8.6      Entire Agreement. This Split Dollar Agreement and the Salary
Continuation Agreement constitute the entire agreement between the Bank and the
Executive concerning the subject matter hereof. No rights are granted to the
Executive under this Split Dollar Agreement other than those specifically set
forth herein.

         8.7      Severability. If for any reason any provision of this Split
Dollar Agreement is held invalid, such invalidity shall not affect any other
provision of this Split Dollar Agreement not held invalid, and to the full
extent consistent with the law each such other provision shall continue in full
force and effect. If any provision of this Split Dollar Agreement is held
invalid in part, such invalidity shall not affect the remainder of such
provision, and to the full extent consistent with the law the remainder of such
provision, together with all other provisions of this Split Dollar Agreement,
shall continue in full force and effect.

         8.8      Headings. The caption headings herein are included solely for
convenience of reference and shall not affect the meaning or interpretation of
any provision of this Split Dollar Agreement.

         8.9      Notices. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered by hand or mailed, certified or registered mail, return
receipt requested, with postage prepaid, to the following addresses or to such
other address as either party may designate by like notice.

                     (a)    If to the Bank, to:
                            Board of Directors
                            Panhandle State Bank
                            Third and Oak Streets
                            Sandpoint, Idaho 83864

                     (b)    If to the Executive,
                            to: Jerrold B. Smith
                            Panhandle State Bank
                            Third and Oak Streets
                            Sandpoint, Idaho 83864

and to such other or additional person or persons as either party shall have
designated to the other party in writing by like notice.

         8.10     IRC Section 1035 Exchanges. The Executive recognizes and
agrees that the Bank may after this Split Dollar Agreement is adopted wish to
exchange the Policy for another contract of life insurance insuring the
Executive's life. Provided that the Policy is replaced (or intended to be
replaced) with a comparable policy of life insurance consistent with the
requirements of section 2.4 herein, the Executive agrees to provide medical
information and cooperate with medical insurance-related testing required by a
prospective Insurer for implementing the Policy or, if necessary, for modifying
or updating to a comparable Insurer per section 2.4. The Executive's

                                        5
<PAGE>

inability to pass an insurability determination for purposes of obtaining a
comparable replacement Policy does not permit the Bank to abrogate the
Executive's interest in the Policy without the Executive's consent.

         8.11     Termination or Modification of Split Dollar Agreement Because
of Changes in Tax Statutes, Rules, or Regulations. The Bank is entering into
this Split Dollar Agreement on the assumption that certain existing tax
statutes, rules, and regulations will continue in effect in their current form.
If that assumption materially changes and the change has a material detrimental
effect on this Split Dollar Agreement, the Bank reserves the right to terminate
or modify this Split Dollar Agreement accordingly, subject to obtaining the
written consent of the Executive, which shall not be unreasonably withheld. This
Section 8.11 shall become null and void effective immediately upon a Change in
Control.

         IN WITNESS WHEREOF, the Bank and the Executive have executed this Split
Dollar Agreement as of the date first written above.

THE EXECUTIVE:                               THE BANK:
                                                 PANHANDLE STATE BANK

___________________________________
Jerrold B. Smith                             By: ______________________________
                                             Its: ______________________________

 AGREEMENT TO COOPERATE WITH INSURANCE UNDERWRITING INCIDENT TO I.R.C. SECTION
                                 1035 EXCHANGE

         I acknowledge that I have read the Split Dollar Agreement and agree to
be bound by its terms, particularly the covenant on my part set forth in section
8.10 of the Split Dollar Agreement to provide medical information and cooperate
with medical insurance-related testing required by an Insurer to issue a
comparable insurance policy to cover the benefit provided under this Split
Dollar Agreement.

___________________________________       ____________________________________
Witness                                   Executive

                                        6
<PAGE>

                              PANHANDLE STATE BANK
                         SPLIT DOLLAR POLICY ENDORSEMENT

Insured: Jerrold B. Smith            Insurer: West Coast Life Insurance Company
Policy No. ZUA391031

         Pursuant to the terms of the Panhandle State Bank Split Dollar
Agreement dated as of _______________, 2003, the undersigned Owner requests that
the above-referenced policy issued by the Insurer provide for the following
beneficiary designation and limited contract ownership rights to the Insured:

         1. Upon the death of the Insured, proceeds shall be paid in one sum to
the Owner, its successors or assigns, to the extent of its interest in the
policy. It is hereby provided that the Insurer may rely solely upon a statement
from the Owner as to the amount of proceeds it is entitled to receive under this
paragraph.

         2. Any proceeds at the death of the Insured in excess of the amount
paid under the provisions of the preceding paragraph shall be paid in one sum
to:

________________________________________________________________________________
PRIMARY BENEFICIARY, RELATIONSHIP/SOCIAL SECURITY NUMBER

________________________________________________________________________________
CONTINGENT BENEFICIARY, RELATIONSHIP/SOCIAL SECURITY NUMBER

The exclusive right to change the beneficiary for the proceeds payable under
this paragraph, to elect any optional method of settlement for the proceeds paid
under this paragraph which are available under the terms of the policy, and to
assign all rights and interests granted under this paragraph are hereby granted
to the Insured. The sole signature of the Insured shall be sufficient to
exercise said rights. The Owner retains all contract rights not granted to the
Insured under this paragraph.

         3. It is agreed by the undersigned that this designation and limited
assignment of rights shall be subject in all respects to the contractual terms
of the policy.

         4. Any payment directed by the Owner under this endorsement shall be a
full discharge of the Insurer, and such discharge shall be binding on all
parties claiming any interest under the policy.

         The undersigned for the Owner is signing in a representative capacity
and warrants that he or she has the authority to bind the entity on whose behalf
this document is being executed.

        Signed at _____________, Sandpoint, Idaho, this_____day of____, 2003.

INSURED:                                      OWNER:
                                                Panhandle State Bank

_____________________________________         By: ______________________________
Jerrold B. Smith

                                              Its: ____________________________

                                        1
<PAGE>

                              PANHANDLE STATE BANK
                         SPLIT DOLLAR POLICY ENDORSEMENT

Insured: Jerrold B. Smith               Insurer: Clarica Life Insurance Company
Policy No. 665519

         Pursuant to the terms of the Panhandle State Bank Split Dollar
Agreement dated as of _______________, 2003, the undersigned Owner requests that
the above-referenced policy issued by the Insurer provide for the following
beneficiary designation and limited contract ownership rights to the Insured:

         1. Upon the death of the Insured, proceeds shall be paid in one sum to
the Owner, its successors or assigns, to the extent of its interest in the
policy. It is hereby provided that the Insurer may rely solely upon a statement
from the Owner as to the amount of proceeds it is entitled to receive under this
paragraph.

         2. Any proceeds at the death of the Insured in excess of the amount
paid under the provisions of the preceding paragraph shall be paid in one sum
to:

________________________________________________________________________________
PRIMARY BENEFICIARY, RELATIONSHIP/SOCIAL SECURITY NUMBER

________________________________________________________________________________
CONTINGENT BENEFICIARY, RELATIONSHIP/SOCIAL SECURITY NUMBER

The exclusive right to change the beneficiary for the proceeds payable under
this paragraph, to elect any optional method of settlement for the proceeds paid
under this paragraph which are available under the terms of the policy, and to
assign all rights and interests granted under this paragraph are hereby granted
to the Insured. The sole signature of the Insured shall be sufficient to
exercise said rights. The Owner retains all contract rights not granted to the
Insured under this paragraph.

         3. It is agreed by the undersigned that this designation and limited
assignment of rights shall be subject in all respects to the contractual terms
of the policy.

         4. Any payment directed by the Owner under this endorsement shall be a
full discharge of the Insurer, and such discharge shall be binding on all
parties claiming any interest under the policy.

         The undersigned for the Owner is signing in a representative capacity
and warrants that he or she has the authority to bind the entity on whose behalf
this document is being executed.

        Signed at______________, Sandpoint, Idaho, this ______day of_____, 2003.

INSURED:                                         OWNER:
                                                    Panhandle State Bank

                                                 By: ___________________________
_______________________________
Jerrold B. Smith
                                                 Its: __________________________

                                        2
<PAGE>

                              PANHANDLE STATE BANK
                         SPLIT DOLLAR POLICY ENDORSEMENT

Insured: Jerrold B. Smith        Insurer: Ohio National Life Insurance Company
Policy No. C6475175

         Pursuant to the terms of the Panhandle State Bank Split Dollar
Agreement dated as of ________________, 2003, the undersigned Owner requests
that the above-referenced policy issued by the Insurer provide for the following
beneficiary designation and limited contract ownership rights to the Insured:

         1. Upon the death of the Insured, proceeds shall be paid in one sum to
the Owner, its successors or assigns, to the extent of its interest in the
policy. It is hereby provided that the Insurer may rely solely upon a statement
from the Owner as to the amount of proceeds it is entitled to receive under this
paragraph.

         2. Any proceeds at the death of the Insured in excess of the amount
paid under the provisions of the preceding paragraph shall be paid in one sum
to:

________________________________________________________________________________
PRIMARY BENEFICIARY, RELATIONSHIP/SOCIAL SECURITY NUMBER

________________________________________________________________________________
CONTINGENT BENEFICIARY, RELATIONSHIP/SOCIAL SECURITY NUMBER

The exclusive right to change the beneficiary for the proceeds payable under
this paragraph, to elect any optional method of settlement for the proceeds paid
under this paragraph which are available under the terms of the policy, and to
assign all rights and interests granted under this paragraph are hereby granted
to the Insured. The sole signature of the Insured shall be sufficient to
exercise said rights. The Owner retains all contract rights not granted to the
Insured under this paragraph.

         3. It is agreed by the undersigned that this designation and limited
assignment of rights shall be subject in all respects to the contractual terms
of the policy.

         4. Any payment directed by the Owner under this endorsement shall be a
full discharge of the Insurer, and such discharge shall be binding on all
parties claiming any interest under the policy.

         The undersigned for the Owner is signing in a representative capacity
and warrants that he or she has the authority to bind the entity on whose behalf
this document is being executed.

       Signed at__________, Sandpoint, Idaho, this______day of_________, 2003.

INSURED:                                     OWNER:
                                               Panhandle State Bank

                                             By: _______________________________
__________________________________
Jerrold B. Smith
                                             Its: _____________________________

                                       3